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When is a Transfer of Property, Assets, or Money Considered Fraudulent?


If you are worried about getting sued, or a lawsuit is going to be filed against you, you may be thinking ahead to how or what you can do with your assets, to avoid having your property or money taken to satisfy any judgment that could be entered against you. Conversely, you may be the party worried that the other side will dispose of property, money or assets, thus leaving you with nothing to collect when and if you win your case.

Whatever side you’re on, it’s a good idea to understand what a fraudulent transfer is, and when one occurs.

What is a Fraudulent Transfer?

Under Florida law, a fraudulent transfer is a disposition of assets –selling, transferring, disposing of, or otherwise getting rid of assets—for the purpose of hindering or delaying creditors from reaching those assets.

If a transfer is considered fraudulent, the creditor can still get to it. So, if you transfer the company car to your aunt for $1 in order to avoid paying a judgment holder, the judgment holder could still, potentially, get the car if the transfer is considered to be fraudulent.

To be fraudulent, someone transferring assets has to be acting intentionally. However, there are factors that courts will look at which are objective factors. If proven, the transfer could be considered fraudulent regardless of intent.

Factors Showing Intent to Defraud

The first thing the court will look at is whether the seller or transferor of the property received adequate consideration or payment for the property that was transferred. In the example above, if the company car was sold to your aunt for $1, it is likely that there is no fair and reasonable value received for the car, making the transfer fraudulent. Often, valuations of transferred property will need to be made, to prove that the party transferring the property did not receive fair compensation.

Courts will also look at the economic effects of the transfer. Did the transfer make the party that owes money insolvent? Did the transfer affect the debtor’s cash flow, or prevent the debtor from paying its bills? If so, the transfer may be fraudulent.

Courts will also often look to who the parties are to the transaction. A transaction between someone and a relative, spouse, or close business associate, is more likely to look fraudulent to a court.

Remedies for Judgment Holders and Creditors

Someone (or a business) that receives property fraudulently can also find themselves in hot water. The creditor can seek a money judgment against the party receiving the property, for the value of the property at the time the transfer is made. Someone “helping” their buddy by “buying” their buddy’s industrial equipment for $1 can find themselves owing a lot of money to their buddy’s creditors, if the transfer is found to be fraudulent.

The creditor can also “unwind” the transaction, essentially undoing the transfer between the seller and the buyer.

If your business is being sued, or you have a claim against another business Pike & Lustig, LLP can help. Call our West Palm Beach business litigation attorneys at 561-291-8298 to get a consultation.


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